Plaza Home Mortgage Corp., in a move that would more than double its servicing portfolio, agreed Monday to acquire Sandia Mortgage Corp. of Albuquerque, N.M.

Plaza, based in Santa Ana, Calif., and one of the top 25 loan originators last year, will see its servicing portfolio grow to $6.3 billion.

It will buy all outstanding Sandia shares for $6.5 million, take over about $40 million in debt, and issue as many as 600,000 shares of common stock to Sandia's owners. The actual number will be determined by the servicing portfolio's performance.

The average interest rate on the acquired servicing portfolio is 8.4%, according to Charles Underbrink, vice president of Sandia. With fixed-rate mortgages now at about 7.5%, some runoff of the portfolio can be expected.

A Growing Trend

The deal is expected to close late in June after Plaza arranges financing.

In making the acquisition, Plaza joins the growing number of originations powerhouses trying to offset the cyclical nature of home loan production with large purchases of servicing.

The theory driving these purchases is that when rising interest rates slow loan production, a steady stream of servicing income will help maintain profitability.

Plaza has a $3 billion servicing portfolio. The addition of Sandia's $3.3 billion will still leave it well out of the ranks of the top 25 servicers.

Plans to Relocate All Servicing Operations

Plaza plans to move all its servicing operations to Albuquerque in the fall, said Brad Morrice, Plaza's general counsel.

Gareth Plank, an analyst with Mabon Securities in San Francisco, said Plaza would benefit from increased geographic diversity and the lower labor and tax expenses in New Mexico.

"It actually looks very good," Mr. Plank said.

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